Investing in Diamonds vs Gold


by Grant HEnson

*The owners of this website may be paid to recommend some precious metals companies. The content on this website, including any positive reviews of these companies and other reviews, may not be neutral or independent.

In the currently struggling economy, most people prefer investing in assets that can help preserve their wealth. To that end, gold and diamonds appear as popular and choices among the many possibilities. But which one is the more sound investment out of the two?

Given that gold is a precious metal with a stable, rising value, investing in gold is preferable to investing in diamonds. We personally recommend gold and other precious metals to most investors.

Unlike gold, which is mainly about weight and purity, a diamond’s worth is determined by factors like its weight, cut, and color. This gives you a higher chance of purchasing a fine diamond and selling it later for significant profit. 

The value of both is also tied to their reputations with gold being the safe haven asset, while diamond is linked with more personal emotional matters like engagements. 

So, which one should you choose? We’ve created this detailed investment guide to help you make this decision. Let’s get started!

Understanding Diamonds and Gold as Investments

Gold has several significant qualities that add to its value and appeal for the general masses. Firstly, gold is very easy to liquidate, making purchases and sales simple and efficient. 

Gold is also more accessible as it is actively traded on several financial exchanges as ETFs. This makes it easier for investors to choose whether to hold gold physically or through online exchange platforms.

Diamonds, on the other hand, are notable for their versatility and wide range of applications, even though they are not as universally appreciated as gold. 

For instance, diamonds are in high demand due to their many industrial applications. They are also considered on the next level of aesthetic value where most people will prefer a silver ring with a diamond over a solid gold band without a gem.

Pros of Investing in Diamonds 

As a widely appraised stone, diamonds have always been a popular investment option. But why invest in diamonds when many more investment options are available today? Here are the core benefits of diamond investments in our opinion:

Emotional and Aesthetic Appeal

Due to its emotional significance, a diamond engagement ring is a popular choice for investment. Buyers are willing to pay a premium for a diamond with the shape and size they’re looking for.

Lasting Value

Diamonds are ideal financially because they are considered crisis-resistant and offer protection against inflation. Diamonds have been found to provide long-term profitability because of their rising global demand and falling availability owing to depleting natural resources.

Rarity

Did you know that it takes around 250 tons of kimberlite or lamproite to produce one carat of gem-quality diamond? This proves the rarity of diamonds. Plus, larger diamonds are more precious because they are even harder to find. 

Here, it’s important for us to mention that the rarity of a diamond is not derived from the mineral itself. Instead, it is determined by how unique, rare, lasting, and appealing the diamond is. 

Pros of Investing in Gold

Just like diamonds, gold also has plenty of investment benefits, including: 

Hedge Against Inflation

We and many other investment experts recommend gold as the ultimate hedge against rising inflation. Unlike fiat currency, gold tends to keep its value over time — making it the safest investment in uncertain political and economic environments. 

Historical Stability

Throughout history, gold has been considered a reliable inflation hedge and a store of value. For instance, the price of gold was exactly $18.93 per ounce from 1833 to 1918. After that it started going up and a single ounce is worth about $2,017 at the time of writing.

Looking at the historic graph, we can see some periods where its price dipped, but it always bounced back up and stayed on an upward trajectory on average.

Uniqueness and Rarity

Gold is rare and unique because it cannot be produced artificially. And since gold's value is well-established and easily verifiable, you may be confident that your money will be worthwhile in any economy, whether you choose to invest or sell your bullion. 

Cons of Investing in Diamonds

While there is a lot we like about diamond investments, they are not perfect. Here are some key downsides you should know about:

Difficulty of Reselling

Unlike gold which you can sell right now at the nearest pawn shop, diamonds require a lot more work and time to sell. If you have a particularly valuable diamond, you might even have to deal with auctions and their high costs.

There is also no set price which makes comparing diamond costs from different sellers even more challenging.

Expertise Required

Finding diamonds with good investment potential necessitates a sophisticated understanding of gemology and the workings of the diamond trade. For that, investors must know how to assess the Four Cs of such stones: cut, color, clarity, and carat weight. Without a clear understanding of these key aspects, it can be difficult to invest in authentic diamonds. 

Ethical Concerns

The diamond industry has potential ties to conflict zones and human rights abuses in the mining and trading processes. Additionally, the environmental impact of diamond mining, including habitat destruction and water pollution, is a significant ethical consideration for most investors. 

Lab Grown Diamonds

With the rising popularity of lab grown diamonds and their lower price point, the price of natural diamonds may fall due to reduced demand.

Cons of Investing in Gold 

Similar to diamonds, gold isn’t a perfect investment either. Here are a few concerns we have about this precious metal as an investment:

Insurance and Storage Costs

You might have to invest in bank lockers or other appropriate storage for gold bars or coins. You’d also need to spend money on insurance, all of which will eat into your profits over the years. 

Limited Use

Gold also lacks any real uses besides investment. Sure, you can turn it into jewelry but that has its own issues like the higher risk of getting damaged or stolen. 

Making an Informed Decision 

Now that we have a better picture of the benefits and drawbacks of both diamonds and gold, here’s what you need to consider to make an informed investment decision:

Understand Your Investment Goals

Understand your financial objectives. Are you trying to accumulate wealth, fund school, buy a home, or save for retirement? Make sure to prioritize and align your investing goals after you clearly understand them. 

Determine Your Risk Tolerance

Assess your risk tolerance or capacity to withstand market shifts and possible losses. Since everybody has a different risk tolerance, you can determine yours by asking yourself the following questions: 

  • Do you find it difficult to make financial choices?
  • Are you open to accepting more risk in hopes of greater returns?
  • How long do you plan to invest your money in your preferred asset?
  • Can you stay committed to your investment plan during a market downturn?
  • How would you react if the value of your investments experienced a notable drop?
  • Would you want to sell your holdings if the market suddenly declined?

Gain Market Knowledge

Learn about the ins and outs of both the gold and diamond markets before choosing to invest your hard earned money. You can study credible sources, keep up with market movements, and read financial news. 

We also suggest hiring a professional financial advisor as they can provide investment strategies that perfectly align with your specific financial situation. 

Conclusion 

From everything we’ve learned, it’s safe to say that both diamonds and gold have their fair share of advantages and disadvantages. 

While gold is capable of maintaining its value even during economic downturns, diamonds tend to have more of an emotional and aesthetic appeal. 

So, the only practical way to determine which asset is a better investment option is by considering your personal investment goals, risk tolerance, and financial strategy.

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